SEC v. Navnoor S. Kang; Gregg Z. Schonhorn; and Deborah D. Kelley, No. 1:16-cv-09829, Southern District of New York (Dec. 26, 2019) — Complaint

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
___________________________________
      )
UNITED STATES SECURITIES    )
AND EXCHANGE COMMISSION, )
      )
    Plaintiff,  )
          v.    )     Civil Action No.  16-cv-9829 (   )
      )
NAVNOOR S. KANG, GREGG Z.  )     Jury Trial Demanded
SCHONHORN, and DEBORAH  )
D. KELLEY,      )
       )
   Defendants.     )
___________________________________  )

COMPLAINT

The United States Securities and Exchange Commission alleges as follows:
Nature of the Action
1. This action concerns the former Director of Fixed Income for the New York State
Common Retirement Fund (the “NYSCRF” or the “Fund”), who demanded and received at least
$180,000 in undisclosed and improper benefits, entertainment, and travel from registered
representatives of broker-dealers in exchange for directing public pension trades to the broker-
dealers.  This “pay-to-play” arrangement netted the registered representatives millions of dollars
in trading commissions.
2. In early 2014, the NYSCRF, the third largest public pension fund in the United
States, hired Defendant Navnoor S. Kang to be its Director of Fixed Income, giving him
investment responsibility for approximately $50 billion of the Fund’s assets.
3. As soon as Kang arrived at the NYSCRF, he engaged in improper and illegal
behavior by soliciting and receiving items of value from Defendant Gregg Z. Schonhorn, a
registered representative of a broker-dealer headquartered in Memphis, Tennessee (“Broker-

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Dealer 1”).
4. During the course of Defendant Kang’s two-year employment at the NYSCRF, he
solicited, and Schonhorn provided, the equivalent of at least $160,000, including:  expensive
dinners, alcohol and bar “bottle service,” entertainment at strip clubs, hotel stays, airfare, tickets
to concerts and sporting events, a $17,000 wristwatch, cash, and tens of thousands of dollars in
cocaine and services from prostitutes.  None of these benefits were disclosed to the Fund.
5. In exchange for these substantial personal benefits, Defendant Kang directed a
significant portion of the NYSCRF’s trading volume to Broker-Dealer 1 for execution.
6. At the time of Defendant Kang’s arrival at the NYSCRF in January 2014, Broker-
Dealer 1 was not executing trades on behalf of the Fund.  Within three months of Defendant
Kang’s arrival, Defendant Kang was directing trades to Broker-Dealer 1 through one of the
Fund’s approved brokers and, by November 2014, Defendant Kang had secured Broker-Dealer 1
a place on the Fund’s approved broker list.  By April 2015, Broker-Dealer 1 had executed at least
$1.5 million in fixed income securities trades.  Thereafter, the increase in business directed to
Broker-Dealer 1 was substantial.  By the end of the NYSCRF’s fiscal year on March 31, 2016,
Broker-Dealer 1 had executed approximately $2.38 billion in fixed income securities trades.
7. As a result, Defendant Schonhorn received sizable commissions – often hundreds
of thousands of dollars per month.
8. Defendant Kang also solicited and received improper benefits and entertainment
from Defendant Deborah D. Kelley, formerly a registered representative of a broker-dealer
headquartered in Birmingham, Alabama (“Broker-Dealer 2”).
9. During the course of Defendant Kang’s employment at the NYSCRF, Defendant
Kelley spent nearly $20,000 in concert tickets, meals, and hotel stays for the benefit of

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Defendant Kang.  Defendant Kelley expensed these items through Broker-Dealer 2 but, as
previously planned with Defendant Kang, intentionally omitted Defendant Kang’s name from
her expense reports.  Further, none of these benefits were disclosed to the Fund.
10. As with Defendant Schonhorn, in exchange for these benefits, Defendant Kang
secured Broker-Dealer 2 a place on the NYSCRF’s approved broker list.
11. At the time of Defendant Kang’s arrival at the NYSCRF, Broker-Dealer 2 was not
executing trades on behalf of the Fund.  By the time Defendant Kang left, Broker-Dealer 2 ( and
its successor broker-dealer) had executed nearly $1 billion in fixed income securities trades on
behalf of the Fund.  As a result of her business relationship with the Fund, Defendant Kelley
received sizable commissions.
12. Defendant Kang, as a fiduciary to the NYSCRF, had a duty to disclose to the
NYSCRF his solicitation and receipt of benefits from Defendants Schonhorn and Kelley in
connection with the securities trades their firms executed on behalf of the NYSCRF.  No such
disclosure was made.
13. Based on conversations Defendants Schonhorn and Kelley had with Defendant
Kang, Defendants Schonhorn and Kelley knew that Defendant Kang was prohibited from
accepting the meals, travel, and entertainment they provided to him, and that he was not
disclosing the receipt of these benefits to the Fund.  Defendants Schonhorn and Kelley, in fact,
took steps to keep the benefits a secret.
14. Defendant Kang, in soliciting and receiving the benefits without any disclosure,
violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C.
§78j(b)], Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Section 17(a) of the Securities Act
of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)(1) and (3)].  Defendants Schonhorn and Kelley

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participated in the fraudulent scheme to keep the benefits a secret, and therefore also violated
Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)], Rules 10b-5(a) and (c) thereunder [17
C.F.R. §§ 240.10b-5(a) and (c)], and Sections 17(a)(1) and (a)(2) of the Securities Act [15
U.S.C. §§ 77q(a)(1) and (3)].  In addition, Defendants Schonhorn and Kelley knowingly
provided substantial assistance to Defendant Kang in keeping the benefits a secret from the
NYSCRF, and therefore aided and abetted Defendant Kang’s violations of Section 10(b) of the
Exchange Act [15 U.S.C. § 78j(b) ], Rule 10b-5(b) thereunder [17 C.F.R. § 240.10b-5(b)], and
Section 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)(2)].
15. Unless Defendants are permanently restrained and enjoined, they will again
engage in the acts, practices, transactions, and courses of business set forth in this Complaint,
and in acts, practices, transactions, and courses of business of similar type and object.
Jurisdiction and Venue

16. The Commission brings this action pursuant to the authority conferred by Section
20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(1) of the Exchange Act [15
U.S.C. § 78u(d)(1)], seeking to restrain and enjoin permanently defendants from engaging in the
acts, practices, transactions, and courses of business alleged herein.  The Commission also seeks
a final judgment ordering defendants to pay disgorgement, prejudgment interest, and civil
penalties pursuant to Section 20(d) of the Securities Act [at U.S.C. § 77t(d)] and Section 21(d)(3)
of the Exchange Act [15 U.S.C. § 78u(d)(3)].
17. This Court has jurisdiction over this action, and venue lies in this District,
pursuant to Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d) and 77v(a)] and
Sections 20(d) and 27(a) of the Exchange Act [15 U.S.C.  §§ 78t(d) and 78aa(a)].  Defendants,
directly or indirectly, singly or in concert, made use of the means or instruments of transportation

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or communication in, and the means or instrumentalities of, interstate commerce, or of the mails
in connection with the acts, practices, transactions, and courses of business alleged herein.  Some
of the acts, practices, transactions, and courses of business at issue occurred in the Southern
District of New York.
Defendants
18. Navnoor S. Kang, age 37, resides in Portland, Oregon.  He is currently a Fixed
Income Portfolio Manager for an insurance and financial services company located in Portland.
From January 2014 through February 2016, Defendant Kang was the Director of Fixed Income
and Head Portfolio Strategist for the NYSCRF.
19. Gregg Z. Schonhorn, age 44, resides in Short Hills, New Jersey.  Since June
2013, Schonhorn has been a registered representative and vice president in fixed income sales at
Broker-Dealer 1, which is headquartered in Memphis, Tennessee.
20. Deborah D. Kelley, age 58, resides in Piedmont, California.  Kelley currently is a
registered representative of a registered broker-dealer.  From January 2012 through August 2015,
Kelley was a registered representative of Broker-Dealer 2, which was headquartered in
Birmingham, Alabama, and its successor broker-dealer based in St. Louis, Missouri.
Other Relevant Entity
21. The New York State Common Retirement Fund is  the third largest public
pension fund in the United States.  It holds assets in excess of $175 billion that it manages for
two New York State retirement systems: the Employees’ Retirement System and the Police and
Fire Retirement System.  The New York State Comptroller determines policies and manages the
investment operations of the NYSCRF.  The New York State Comptroller, and anyone to whom
he or she delegates powers of investment – such as Defendant Kang – is a fiduciary of the Fund.

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New York state law mandates that such fiduciaries shall not receive any consideration from any
party other than the Office of the State Comptroller in connection with a transaction involving
the Fund.
The Facts
22. Defendant Kang met Defendant Schonhorn in or around 2010 in Las Vegas
through a colleague of Defendant Schonhorn’s who was entertaining Defendant Kang.
23. At the time, Defendant Schonhorn was a fixed income trader with another broker-
dealer, and Defendant Kang, who had previously spent three years as a portfolio associate with a
well-known asset management firm (“Asset Manager 1”), was working as a vice president and
fixed income trader with another prominent asset management firm (“Asset Manager 2”).
24. Defendant Kelley met Defendant Kang while he was employed by Asset Manager
1, and she had a business relationship with him for a period of time while he worked at Asset
Manager 2.
25. At some point in or around 2012, Defendant Kang accepted an $8,000 Rolex
watch from Defendant Schonhorn, which Defendant Kang did not disclose to Asset Manager 2.
26. An internal investigation by Asset Manager 2 in late 2012 into Defendant Kang’s
activities concluded that he had accepted Rolling Stones concert tickets valued at $1,200 from a
registered representative of a broker-dealer doing business with Asset Manager 2.  This
registered representative was the same person who introduced Defendant Schonhorn to
Defendant Kang.
27. In addition, the investigation determined that Defendant Kang failed to report at
least 54 additional instances where he received benefits and entertainment.  Asset Manager 2
terminated Defendant Kang in January 2013 for violations of its compliance and ethics policies

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based on his improper receipt of, and failure to report, these benefits and entertainment.  Asset
Manager 2 informed Defendant Kang that he was being terminated for these reasons.
28. Between January 2013 and January 2014, Defendant Kang was unemployed and
actively seeking work.  Defendants Schonhorn and Kelley remained in contact with Defendant
Kang, and both assisted him in his job search – all in an effort to maintain and cultivate their
business relationship.  Defendant Kelley provided a reference to the NYSCRF on Defendant
Kang’s behalf.
Kang’s Employment by and Duties to the NYSCRF
29. In January 2014, the NYSCRF hired Defendant Kang as its Director of Fixed
Income.  During his job interview with the NYSCRF, Defendant Kang lied about the reason he
was terminated by Asset Manager 2.
30. As the Director of Fixed Income at the Fund, Defendant Kang made investment
decisions, supervised seven investment officers, and was responsible for approximately $50
billion of the Fund’s assets that were held in fixed-income securities.
31. Under New York State Law, the New York State Comptroller, and anyone to
whom he or she delegates powers of investment, is a fiduciary of the Fund.  Because Defendant
Kang was delegated powers of investment by the Comptroller, he was a fiduciary to the Fund.
As a fiduciary, Kang was required to act solely in the interests of the members and beneficiaries
of the Fund, and was prohibited from receiving any consideration from any party other than the
Office of the State Comptroller in connection with a transaction involving the Fund.
32. The NYSCRF maintains a “Code of Conduct” containing standards for the
management of the Fund.  The Code of Conduct applies to all employees of the Office of the
State Comptroller who have responsibility for matters relating to the Fund.  Among other things,

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the Code of Conduct mandates that the Fund shall “be managed in accordance with the highest
ethical, professional and conflict of interest standards,” and actions on behalf of the Fund “shall
be for the sole benefit of the Retirement System’s members, retirees and beneficiaries.”
33. Defendant Kang received training on the Fund’s policies and codes, as well as
applicable New York State Law, and certified as to his understanding of the prohibitions
contained therein regarding the receipt of gifts, meals, travel,  and entertainment.
34. Defendant Kang had an affirmative and continuing duty to disclose to the Fund
his solicitation and acceptance of travel, entertainment, and benefits.  Defendant Kang was
required to report the receipt of anything more than nominal value from interested parties.
35. During his tenure with the Fund, Defendant Kang made no such disclosures.
Furthermore, Defendant Kang filed a certification with the Fund in which he represented that he
had received no gifts in excess of $1000.  This certification was false.
Schonhorn and Kelley Corruptly Provide Benefits to Kang
36. In February 2014, shortly after accepting the position with the NYSCRF,
Defendants Schonhorn and Kang went on a lavish trip to Montreal, at the suggestion of
Defendant Kang.  Defendant Schonhorn paid expenses for both himself and Defendant Kang,
which included more than $825 for airline tickets, approximately $720 for hotel rooms, $3,500
for meals and drinks, and cash for cocaine.
37. In total, between February 23, 2014 and May 1, 2016, Defendant Schonhorn spent
approximately $160,000 on more than 100 separate transactions of benefits, travel, and
entertainment for the benefit of Defendant Kang, none of which was disclosed by Defendant
Kang to the NYSCRF.  Defendant Schonhorn did not expense these benefits to Broker-Dealer 1,
but rather paid for them out of his own pocket.

 9
38. A partial breakdown of the money spent by Defendant Schonhorn for the benefit
of Defendant Kang includes:  more than $50,000 spent on hotel rooms in New York City,
Montreal, Atlantic City, and Cleveland; approximately $25,000 spent at bars and lounges and on
bottle service; approximately $25,000 spent at restaurants; a $17,400 Panerai watch purchased
for Defendant Kang; and a $4,200 Hermes bracelet, which was purchased for Defendant Kang’s
girlfriend at Defendant Kang’s request.
39. Defendant Schonhorn provided these benefits to Defendant Kang for the purpose
of obtaining lucrative NYSCRF business through Defendant Kang.
40. Following Defendant Schonhorn’s gift of the $17,400 Panerai watch to Defendant
Kang, Defendant Schonhorn and Defendant Kang agreed that Defendant Schonhorn would
continue entertaining Defendant Kang and providing him benefits so long as Defendant Kang
funneled enough business to Broker-Dealer 1 to make it worthwhile for Defendant S chonhorn.
41. Defendant Kelley provided thousands of dollars’ worth of benefits and
entertainment to Defendant Kang in exchange for access to NYSCRF business, despite the fact
that her colleagues had warned her to avoid such behavior.
42. Specifically, in a February 6, 2014 email (immediately prior to Defendant Kelley
beginning her coverage of the NYSCRF account), another registered representative at Broker-
Dealer 2 told Defendant Kelley to “remember these guys cannot be entertained as they are a state
fund.”
43. Nevertheless, Defendant Kelley soon thereafter planned a trip to New Orleans for
herself, her husband, Defendant Kang, and Defendant Kang’s girlfriend, which took place in
October 2014.
44. On this trip, Defendant Kelley spent, and then expensed to Broker-Dealer 2, more

 10
than $8,000 for the four of them on meals, drinks, and entertainment, including $6,000 for four
VIP tickets to a Paul McCartney concert.
45. Defendant Kelley intentionally omitted the names of Defendant Kang and his
girlfriend from her expense reports, instead listing clients from a private firm.
46. Four months later, in February 2015, Defendant Kelley planned a ski trip to Park
City, Utah for herself, her husband, a co-worker, Defendant Kang, and Defendant Kang’s
girlfriend.  In particular, Defendant Kelley paid, and then expensed back to Broker-Dealer 2,
expenses for Defendant Kang and Defendant Kang’s girlfriend, which included more than
$11,000 for limousine service, skiing, hotel rooms, dinners, and drinks.
47. Once again, Defendant Kelley concealed from Broker-Dealer 2 the fact that
Defendant Kang and his girlfriend were on the trip, listing other clients (and even some personal
acquaintances not in the securities industry) on her expense reports.
48. Defendant Kang did not disclose his receipt of any of these meals, travel, or
entertainment to the NYSCRF.
Kang Corruptly Rewards Schonhorn and Kelley with Lucrative Bond Trading Business
49. In exchange for these benefits, Defendant Kang steered lucrative bond trading
business for the NYSCRF to Broker-Dealers 1 and 2, resulting in substantial personal gain for
Defendants Schonhorn and Kelley.
50. When Defendant Kang first arrived at the NYSCRF, there were a very small
number of brokers approved to execute fixed income trades directly for the Fund.
51. Defendant Kang set out to expand the list of approved brokers under the guise of
facilitating additional liquidity and obtaining best execution.
52. On June 10, 2014, at Defendant Kang’s direction, the Fund initiated a fixed

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income broker search to select brokers for its internally managed assets.  Interested entities were
required to submit applications, which were then reviewed internally by a group led by
Defendant Kang.
53. Defendants Schonhorn and Kelley submitted applications on behalf of Broker-
Dealer 1 and Broker-Dealer 2, respectively.
54. Several months later, on November 6, 2014, Defendant Kang sent a memorandum
to the NYSCRF’s CIO recommending that eight brokers be added to the approved list.  The
recommended brokers included Broker-Dealer 1 and Broker-Dealer 2, and all eight brokers were
approved.
55. Although Defendant Kang indicated in his memorandum that the eight brokers
would be required to submit to a “full due diligence process” conducted by an outside firm, no
such process ever took place.  Accordingly, the eight brokers were approved based solely on the
recommendation contained in Defendant Kang’s November 6, 2014 memorandum.
56. Prior to Broker-Dealer 1 and Broker-Dealer 2 becoming approved brokers,
Defendant Kang was directing trades to both brokers through one of the Fund’s approved
brokers, “Broker-Dealer 3.”
57. By using Broker-Dealer 3, Defendant Kang circumvented the Fund’s policy of
only using approved brokers, thus allowing Defendant Kang to steer Fund business and
commissions to Defendants Schonhorn’s and Kelley’s firms even before Defendant Kang was
able to engineer the placement of those firms on the Fund’s approved broker list.
58. Defendant Kelley provided substantial personal benefits to Defendant Kang
beginning shortly after the Fund solicited applications for additional brokers, as the timeline
below illustrates:

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Date Event
June 10, 2014 NYSCRF solicits applications for brokers via email.
August 15, 2014 In an instant Bloomberg message between Defendants Kang and
Kelley, Defendant Kang says he would like to see a Paul McCartney
concert but “might have to sell a car to get [tickets].”  Defendant Kang
says he wants to see the concert in New Orleans.  Defendant Kelley
responds, “I’m in.”
August 19, 2014 Defendant Kelley purchases four Paul McCartney tickets at a price of
$6,005.
October 9-13,
2014
Defendant Kelley and her husband spend a weekend in New Orleans
with Defendant Kang and Defendant Kang’s girlfriend.  Defendant
Kelley expenses more than $8,000 in meals and entertainment.
November 6, 2014 In a memorandum to CIO of NYSCRF, Defendant Kang recommends
Broker-Dealer 2, Defendant Kelley’s firm.
November 6, 2014 Defendant Kang calls one of Defendant Kelley’s colleagues at Broker-
Dealer 2 and mentions going on a ski trip.
February 13-16,
2015
Park City ski trip takes place.  Defendant Kelley expenses more than
$11,000 in meals, hotel rooms, ski equipment and rentals, limousine
service, and entertainment.

59. Defendant Schonhorn similarly provided substantial personal benefits to
Defendant Kang beginning shortly after the Fund solicited applications for additional brokers.
Between the June 10, 2014 email from the NYSCRF soliciting applications for brokers and
Defendant Kang’s November 6, 2014 broker recommendation memorandum, Defendant
Schonhorn spent more than $38,000 on dinners, drinks, concert and sports tickets, illicit drugs,
and prostitutes for himself and Defendant Kang.
60. Over the approximately two years that Defendant Kang worked at the NYSCRF,
he directed a significant amount of trading to Broker-Dealers 1 and 2, resulting in substantial
personal gain for Defendants Schonhorn and Kelley.   Defendant Schonhorn, for example, often

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received hundreds of thousands of dollars in monthly commissions.
Kelley and Kang Continue Their Attempts to Keep the Scheme a Secret
61. On August 10, 2015, Broker-Dealer 2 terminated Defendant Kelley after
conducting an internal investigation into her activities.  During the course of that investigation,
Defendant Kelley repeatedly lied about the circumstances of the expenditures and who was
present in Park City.  For example, Defendant Kelley falsely stated that the Park City hotel room
used by Defendant Kang and his girlfriend was unoccupied during the ski trip, and that she did
not pay for meals for Defendant Kang and his girlfriend.
62. Starting on or around October 2015, Defendant Kang and Defendant Kelley
agreed to tell the same false story about the ski trip to help cover up their activities in Park City.
63. In her October 2015 response to a letter of inquiry from the Financial Industry
Regulatory Authority, Inc. (“FINRA”), Defendant Kelley lied about the circumstances of the
expenditures and who was present in Park City.
64. On December 17, 2015, Defendant Kelley provided sworn testimony to the
Commission, during which she perjured herself throughout.  As she had done during Broker-
Dealer 2’s internal investigation and in her response to FINRA, she repeatedly lied about the
circumstances of the expenditures and who was present in Park City.  Consistent with her
agreement with Defendant Kang, she testified that she only paid for some small expenses for
Defendant Kang, and that Defendant Kang reimbursed her with cash and rounds of drinks.  In
addition, Defendant Kelley never disclosed the existence of, or expenses associated with, the trip
to New Orleans in spite of the Commission’s inquiries as to whether there was any additional
travel or expenses similar to the Park City trip.
65. Both before and after her testimony, Defendants Kelley and Kang remained in

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contact.  At some point in January 2016, Defendant Kang became aware that Defendant Kelley
would not continue to lie about the Park City trip.   Within days, Defendant Kang made several
attempts to contact his ex-girlfriend for assistance in covering up his activities.  She refused to
take his calls.
66. Defendant Kang then enlisted Defendant Schonhorn’s help.  Defendant Kang
asked Defendant Schonhorn if he knew anyone who could fabricate hotel receipts, in order to
cover up the ski trip.  In addition, at Defendant Kang’s request, Defendant Schonhorn called
Defendant Kang’s ex-girlfriend and asked her to send a $4,000 check to Defendant Kelley and to
pretend as if she had simply forgotten to pay Defendant Kelley for their hotel room.  Defendant
Kang’s ex-girlfriend refused to do this.
67. Thereafter, in late January 2016, nearly a year after the Park City trip and after
failing to enlist the help of his ex-girlfriend to cover up the scheme, Defendant Kang had a
colleague hand deliver a personal check to Defendant Kelley in the amount of $4,500.  The
check arrived inside of a Christmas card containing a note written by Defendant Kang which
falsely stated that “ [i]t was just brought to my attention” that his ex-girlfriend “never took care of
our side of the [ski] trip” and asking Defendant Kelley to let him know if the amount of the
check was not enough to cover the expenses.
68. All of these efforts were a deliberate attempt by Defendants Kang and Kelley to
cover-up their scheme from NYSCRF and others.
69. On February 22, 2016, the NYSCRF terminated Defendant Kang.
70. On April 21, 2016, Defendant Kang provided sworn testimony to the
Commission, during which he perjured himself throughout.
71. In August 2016, Defendant Kang met with Defendant Schonhorn.  During this

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meeting, Defendant Kang discussed how to thwart the Commission’s investigation and any
criminal investigation into the activities of Defendants Kang and Schonhorn.
72. Also at this meeting, Defendant Kang returned the $17,400 Panerai watch to
Defendant Schonhorn.  Defendant Kang told Schonhorn that he had shredded the paperwork that
had come with the watch, and he explained to Defendant Schonhorn how to have Defendant
Kang’s name removed from the watch company’s registration records.
73. Defendant Kang also disclosed to Defendant Schonhorn the substance of his
testimony to the Commission, and coached Defendant Schonhorn to frustrate the Commission’s
attempts to question Defendant Schonhorn by simply saying that he does not recall things.
Defendant Kang also suggested to Defendant Schonhorn that they purchase disposable
cellphones in order to further discuss their attempts to cover up their activities without the risk of
their telephone calls being monitored.
Claims for Relief

Count I

Against Defendant Navnoor S. Kang
for Violations of Section 10(b) of the Exchange Act
and Rule 10b-5 Thereunder

74. The Commission realleges and incorporates by reference paragraphs 1 through 73
as if fully set forth herein.
75. Defendant Kang, in connection with the purchase or sale of securities, by use of
the means or instrumentalities of interstate commerce or the mails, directly or indirectly: (a) used
or employed devices, schemes, or artifices to defraud; (b) made untrue statements of material
fact or omitted to state material facts necessary to make statements made, in light of the
circumstances under which they were made, not misleading; and/or (c) engaged in acts,

 16
practices, or courses of business which operated or would operate as a fraud and deceit upon
other persons, including current and prospective purchasers of securities.
76. Defendant Kang knowingly or recklessly engaged in the fraudulent conduct
described above.
77. By engaging in the conduct described above, Defendant Kang has violated
Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R.
§ 240.10b-5].
Count II

Against Defendant Navnoor S. Kang
for Violations of Sections 17(a) of the Securities Act

78. The Commission realleges and incorporates by reference paragraphs 1 through 73
as if fully set forth herein.
79. Defendant Kang, in the offer or sale of securities, by use of the means or
instruments of transportation or communication in interstate commerce or by the use of the
mails, directly or indirectly: (a) employed devices, schemes, or artifices to defraud; (b) obtained
money or property by means of untrue statements of material fact or omissions to state a material
fact necessary to make the statements made, in light of the circumstances under which they were
made, not misleading; and/or (c) engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon purchasers of securities.
80. Defendant Kang knowingly, recklessly, or negligently engaged in the fraudulent
conduct described above.
81. By engaging in the conduct described above, Defendant Kang violated Section
17(a) of the Securities Act [15 U.S.C. § 77q(a)].

 17
Count III

Against Defendants Gregg Z. Schonhorn and Deborah D. Kelley
for Violations of Section 10(b) of the Exchange Act
and Rule 10b-5(a)   and (c) Thereunder

82. The Commission realleges and incorporates by reference paragraphs 1 through 73
as if fully set forth herein.
83. Defendants Schonhorn and Kelley, in connection with the purchase or sale of
securities, by use of the means or instrumentalities of interstate commerce or the mails, directly
or indirectly: (a) used or employed devices, schemes, or artifices to defraud; and/or (b) engaged
in acts, practices, or courses of business which operated or would operate as a fraud and deceit
upon other persons, including current and prospective purchasers of securities.
84. Defendants Schonhorn and Kelley knowingly or recklessly engaged in the
fraudulent conduct described above.
85. By engaging in the conduct described above, Defendants Schonhorn and Kelley
violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rules 10b-5(a) and (c)
thereunder [17 C.F.R. § 240.10b-5(a) and (c)].
Count IV

Against Defendants Gregg Z. Schonhorn and Deborah D. Kelley
for Violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act

86. The Commission realleges and incorporates by reference paragraphs 1 through 73
as if fully set forth herein.
87. Defendants Schonhorn and Kelley, in the offer or sale of securities, by use of the
means or instruments of transportation or communication in interstate commerce or by the use of
the mails, directly or indirectly: (a) employed devices, schemes, or artifices to defraud; and/or (b)
engaged in transactions, practices, or courses of business which operated or would operate as a

 18
fraud or deceit upon purchasers of securities.
88. Defendants Schonhorn and Kelley intentionally or recklessly engaged in the
fraudulent conduct described in paragraph 88(a) and intentionally, recklessly, or negligently
engaged in the conduct described in paragraph 88(b).
89. By engaging in the conduct described above, Defendants Schonhorn and Kelley
violated Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1) and
77q(a)(3)].
Count V

Against Defendants Gregg Z. Schonhorn and Deborah D. Kelley
for Aiding and Abetting Violations of Section 10(b) of the Exchange Act
And Rule 10b-5(b) Thereunder

90. The Commission realleges and incorporates by reference paragraphs 1 through 73
as if fully set forth herein.
91. By engaging in the conduct described above, Defendant Kang, in connection with
the purchase or sale of securities, by use of the means or instrumentalities of interstate commerce
or the mails, directly or indirectly, acting intentionally, knowingly or recklessly, made untrue
statements of material fact or omitted to state material fact(s) necessary to make statements
made, in light of the circumstances under which they were made, not misleading.
92. Defendants Schonhorn and Kelley knowingly or recklessly provided substantial
assistance to Defendant Kang in his violation of Section 10(b) of the Exchange Act and Rule
10b-5(b) thereunder.
93. By engaging in the conduct described above, Defendants Schonhorn and Kelley
aided and abetted violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule
10b-5(b) thereunder [17 C.F.R. § 240.10b-5(b)].

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Count VI

Against Defendants Gregg Z. Schonhorn and Deborah D. Kelley
for Aiding and Abetting Violations of Section 17(a)(2) of the Securities Act

94. The Commission realleges and incorporates by reference paragraphs 1 through 73
as if fully set forth herein.
95. By engaging in the conduct described above, Defendant Kang, in the offer or sale
of securities, by use of the means or instruments of transportation or communication in interstate
commerce or by the use of the mails, directly or indirectly, obtained money or property by means
of untrue statements of material fact or omissions to state a material fact necessary to make the
statements made, in light of the circumstances under which they were made, not misleading.
96. Defendants Schonhorn and Kelley knowingly or recklessly provided substantial
assistance to Defendant Kang in his violation of Section 17(a)(2) of the Securities Act.
97. By engaging in the conduct described above, Defendant Schonhorn and Kelley
aided and abetted violations of Section 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)].
Prayer for Relief
         WHEREFORE, the Commission respectfully requests that the Court:
I.
Permanently enjoin Defendants from violating or aiding and abetting violations of
Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], Rule 10b-5 thereunder [17 C.F.R.
§ 240.10b-5], and Section 17(a) of the Securities Act [ 15 U.S.C. § 77q(a)];
II.
Order Defendants to disgorge the ill-gotten gains they received from the violations
alleged herein, including prejudgment interest thereon;
III.

 20
Order Defendants to pay civil penalties pursuant to Section 20 of the Securities Act [ 15
U.S.C. § 77t], and Section 21(d)(3) of the Exchange Act [ 15 U.S.C. § 78u(d)]; and
IV.

Grant such other and further relief as the Court deems just and proper.
Jury Demand

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands that
this case be tried to a jury on all issues so triable.
Date:    December 21, 2016   Respectfully submitted,

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

      /s/ Alyssa A. Qualls
           Alyssa A. Qualls (AQ-4247)
John E. Birkenheier, Illinois Bar No. 6270993
Brian D. Fagel, Illinois Bar No. 6224886
     Attorneys for Plaintiff
          U.S. Securities and Exchange Commission
              Chicago Regional Office
          175 West Jackson Blvd., Suite 900
          Chicago, Illinois 60604
          (312) 353-7390
          (312) 353-7398 (facsimile)
      [email protected]

      [email protected]
      [email protected]

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
___________________________________ 
      ) 
UNITED STATES SECURITIES  ) 
AND EXCHANGE COMMISSION, ) 
      )     
    Plaintiff,  ) 
          v.    )     Civil Action No. 16-cv-9829 (   ) 
      )   
NAVNOOR S. KANG, GREGG Z.  )     Jury Trial Demanded   
SCHONHORN, and DEBORAH  )  
D. KELLEY,     ) 
       ) 
   Defendants.  )     
___________________________________  ) 
 

COMPLAINT 
 

The United States Securities and Exchange Commission alleges as follows: 

Nature of the Action  

1. This action concerns the former Director of Fixed Income for the New York State 

Common Retirement Fund (the “NYSCRF” or the “Fund”), who demanded and received at least 

$180,000 in undisclosed and improper benefits, entertainment, and travel from registered 

representatives of broker-dealers in exchange for directing public pension trades to the broker-

dealers.  This “pay-to-play” arrangement netted the registered representatives millions of dollars 

in trading commissions. 

2. In early 2014, the NYSCRF, the third largest public pension fund in the United 

States, hired Defendant Navnoor S. Kang to be its Director of Fixed Income, giving him 

investment responsibility for approximately $50 billion of the Fund’s assets.   

3. As soon as Kang arrived at the NYSCRF, he engaged in improper and illegal 

behavior by soliciting and receiving items of value from Defendant Gregg Z. Schonhorn, a 

registered representative of a broker-dealer headquartered in Memphis, Tennessee (“Broker-

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2 

Dealer 1”).   

4. During the course of Defendant Kang’s two-year employment at the NYSCRF, he 

solicited, and Schonhorn provided, the equivalent of at least $160,000, including:  expensive 

dinners, alcohol and bar “bottle service,” entertainment at strip clubs, hotel stays, airfare, tickets 

to concerts and sporting events, a $17,000 wristwatch, cash, and tens of thousands of dollars in 

cocaine and services from prostitutes.  None of these benefits were disclosed to the Fund. 

5. In exchange for these substantial personal benefits, Defendant Kang directed a 

significant portion of the NYSCRF’s trading volume to Broker-Dealer 1 for execution.   

6. At the time of Defendant Kang’s arrival at the NYSCRF in January 2014, Broker-

Dealer 1 was not executing trades on behalf of the Fund.  Within three months of Defendant 

Kang’s arrival, Defendant Kang was directing trades to Broker-Dealer 1 through one of the 

Fund’s approved brokers and, by November 2014, Defendant Kang had secured Broker-Dealer 1 

a place on the Fund’s approved broker list.  By April 2015, Broker-Dealer 1 had executed at least 

$1.5 million in fixed income securities trades.  Thereafter, the increase in business directed to 

Broker-Dealer 1 was substantial.  By the end of the NYSCRF’s fiscal year on March 31, 2016, 

Broker-Dealer 1 had executed approximately $2.38 billion in fixed income securities trades.   

7. As a result, Defendant Schonhorn received sizable commissions – often hundreds 

of thousands of dollars per month. 

8. Defendant Kang also solicited and received improper benefits and entertainment 

from Defendant Deborah D. Kelley, formerly a registered representative of a broker-dealer 

headquartered in Birmingham, Alabama (“Broker-Dealer 2”). 

9. During the course of Defendant Kang’s employment at the NYSCRF, Defendant 

Kelley spent nearly $20,000 in concert tickets, meals, and hotel stays for the benefit of 

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3 

Defendant Kang.  Defendant Kelley expensed these items through Broker-Dealer 2 but, as 

previously planned with Defendant Kang, intentionally omitted Defendant Kang’s name from 

her expense reports.  Further, none of these benefits were disclosed to the Fund.   

10. As with Defendant Schonhorn, in exchange for these benefits, Defendant Kang 

secured Broker-Dealer 2 a place on the NYSCRF’s approved broker list.   

11. At the time of Defendant Kang’s arrival at the NYSCRF, Broker-Dealer 2 was not 

executing trades on behalf of the Fund.  By the time Defendant Kang left, Broker-Dealer 2 (and 

its successor broker-dealer) had executed nearly $1 billion in fixed income securities trades on 

behalf of the Fund.  As a result of her business relationship with the Fund, Defendant Kelley 

received sizable commissions. 

12. Defendant Kang, as a fiduciary to the NYSCRF, had a duty to disclose to the 

NYSCRF his solicitation and receipt of benefits from Defendants Schonhorn and Kelley in 

connection with the securities trades their firms executed on behalf of the NYSCRF.  No such 

disclosure was made.   

13. Based on conversations Defendants Schonhorn and Kelley had with Defendant 

Kang, Defendants Schonhorn and Kelley knew that Defendant Kang was prohibited from 

accepting the meals, travel, and entertainment they provided to him, and that he was not 

disclosing the receipt of these benefits to the Fund.  Defendants Schonhorn and Kelley, in fact, 

took steps to keep the benefits a secret.   

14. Defendant Kang, in soliciting and receiving the benefits without any disclosure, 

violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. 

§78j(b)], Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Section 17(a) of the Securities Act 

of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)(1) and (3)].  Defendants Schonhorn and Kelley 

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4 

participated in the fraudulent scheme to keep the benefits a secret, and therefore also violated 

Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)], Rules 10b-5(a) and (c) thereunder [17 

C.F.R. §§ 240.10b-5(a) and (c)], and Sections 17(a)(1) and (a)(2) of the Securities Act [15 

U.S.C. §§ 77q(a)(1) and (3)].  In addition, Defendants Schonhorn and Kelley knowingly 

provided substantial assistance to Defendant Kang in keeping the benefits a secret from the 

NYSCRF, and therefore aided and abetted Defendant Kang’s violations of Section 10(b) of the 

Exchange Act [15 U.S.C. § 78j(b) ], Rule 10b-5(b) thereunder [17 C.F.R. § 240.10b-5(b)], and 

Section 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)(2)].  

15. Unless Defendants are permanently restrained and enjoined, they will again 

engage in the acts, practices, transactions, and courses of business set forth in this Complaint, 

and in acts, practices, transactions, and courses of business of similar type and object.

Jurisdiction and Venue 
 

16. The Commission brings this action pursuant to the authority conferred by Section 

20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(1) of the Exchange Act [15 

U.S.C. § 78u(d)(1)], seeking to restrain and enjoin permanently defendants from engaging in the 

acts, practices, transactions, and courses of business alleged herein.  The Commission also seeks 

a final judgment ordering defendants to pay disgorgement, prejudgment interest, and civil 

penalties pursuant to Section 20(d) of the Securities Act [at U.S.C. § 77t(d)] and Section 21(d)(3) 

of the Exchange Act [15 U.S.C. § 78u(d)(3)].  

17. This Court has jurisdiction over this action, and venue lies in this District, 

pursuant to Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d) and 77v(a)] and 

Sections 20(d) and 27(a) of the Exchange Act [15 U.S.C.  §§ 78t(d) and 78aa(a)].  Defendants, 

directly or indirectly, singly or in concert, made use of the means or instruments of transportation 

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or communication in, and the means or instrumentalities of, interstate commerce, or of the mails 

in connection with the acts, practices, transactions, and courses of business alleged herein.  Some 

of the acts, practices, transactions, and courses of business at issue occurred in the Southern 

District of New York.   

Defendants 

18. Navnoor S. Kang, age 37, resides in Portland, Oregon.  He is currently a Fixed 

Income Portfolio Manager for an insurance and financial services company located in Portland.  

From January 2014 through February 2016, Defendant Kang was the Director of Fixed Income 

and Head Portfolio Strategist for the NYSCRF.   

19. Gregg Z. Schonhorn, age 44, resides in Short Hills, New Jersey.  Since June 

2013, Schonhorn has been a registered representative and vice president in fixed income sales at 

Broker-Dealer 1, which is headquartered in Memphis, Tennessee.  

20. Deborah D. Kelley, age 58, resides in Piedmont, California.  Kelley currently is a 

registered representative of a registered broker-dealer.  From January 2012 through August 2015, 

Kelley was a registered representative of Broker-Dealer 2, which was headquartered in 

Birmingham, Alabama, and its successor broker-dealer based in St. Louis, Missouri. 

Other Relevant Entity 

21. The New York State Common Retirement Fund is the third largest public 

pension fund in the United States.  It holds assets in excess of $175 billion that it manages for 

two New York State retirement systems: the Employees’ Retirement System and the Police and 

Fire Retirement System.  The New York State Comptroller determines policies and manages the 

investment operations of the NYSCRF.  The New York State Comptroller, and anyone to whom 

he or she delegates powers of investment – such as Defendant Kang – is a fiduciary of the Fund.  

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New York state law mandates that such fiduciaries shall not receive any consideration from any 

party other than the Office of the State Comptroller in connection with a transaction involving 

the Fund. 

The Facts 

22. Defendant Kang met Defendant Schonhorn in or around 2010 in Las Vegas 

through a colleague of Defendant Schonhorn’s who was entertaining Defendant Kang.   

23. At the time, Defendant Schonhorn was a fixed income trader with another broker-

dealer, and Defendant Kang, who had previously spent three years as a portfolio associate with a 

well-known asset management firm (“Asset Manager 1”), was working as a vice president and 

fixed income trader with another prominent asset management firm (“Asset Manager 2”).   

24. Defendant Kelley met Defendant Kang while he was employed by Asset Manager 

1, and she had a business relationship with him for a period of time while he worked at Asset 

Manager 2.   

25. At some point in or around 2012, Defendant Kang accepted an $8,000 Rolex 

watch from Defendant Schonhorn, which Defendant Kang did not disclose to Asset Manager 2.   

26. An internal investigation by Asset Manager 2 in late 2012 into Defendant Kang’s 

activities concluded that he had accepted Rolling Stones concert tickets valued at $1,200 from a 

registered representative of a broker-dealer doing business with Asset Manager 2.  This 

registered representative was the same person who introduced Defendant Schonhorn to 

Defendant Kang.   

27. In addition, the investigation determined that Defendant Kang failed to report at 

least 54 additional instances where he received benefits and entertainment.  Asset Manager 2 

terminated Defendant Kang in January 2013 for violations of its compliance and ethics policies 

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based on his improper receipt of, and failure to report, these benefits and entertainment.  Asset 

Manager 2 informed Defendant Kang that he was being terminated for these reasons. 

28. Between January 2013 and January 2014, Defendant Kang was unemployed and 

actively seeking work.  Defendants Schonhorn and Kelley remained in contact with Defendant 

Kang, and both assisted him in his job search – all in an effort to maintain and cultivate their 

business relationship.  Defendant Kelley provided a reference to the NYSCRF on Defendant 

Kang’s behalf. 

Kang’s Employment by and Duties to the NYSCRF 

29. In January 2014, the NYSCRF hired Defendant Kang as its Director of Fixed 

Income.  During his job interview with the NYSCRF, Defendant Kang lied about the reason he 

was terminated by Asset Manager 2. 

30. As the Director of Fixed Income at the Fund, Defendant Kang made investment 

decisions, supervised seven investment officers, and was responsible for approximately $50 

billion of the Fund’s assets that were held in fixed-income securities.   

31. Under New York State Law, the New York State Comptroller, and anyone to 

whom he or she delegates powers of investment, is a fiduciary of the Fund.  Because Defendant 

Kang was delegated powers of investment by the Comptroller, he was a fiduciary to the Fund.  

As a fiduciary, Kang was required to act solely in the interests of the members and beneficiaries 

of the Fund, and was prohibited from receiving any consideration from any party other than the 

Office of the State Comptroller in connection with a transaction involving the Fund. 

32. The NYSCRF maintains a “Code of Conduct” containing standards for the 

management of the Fund.  The Code of Conduct applies to all employees of the Office of the 

State Comptroller who have responsibility for matters relating to the Fund.  Among other things, 

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the Code of Conduct mandates that the Fund shall “be managed in accordance with the highest 

ethical, professional and conflict of interest standards,” and actions on behalf of the Fund “shall 

be for the sole benefit of the Retirement System’s members, retirees and beneficiaries.” 

33. Defendant Kang received training on the Fund’s policies and codes, as well as 

applicable New York State Law, and certified as to his understanding of the prohibitions 

contained therein regarding the receipt of gifts, meals, travel, and entertainment. 

34. Defendant Kang had an affirmative and continuing duty to disclose to the Fund 

his solicitation and acceptance of travel, entertainment, and benefits.  Defendant Kang was 

required to report the receipt of anything more than nominal value from interested parties.   

35. During his tenure with the Fund, Defendant Kang made no such disclosures.  

Furthermore, Defendant Kang filed a certification with the Fund in which he represented that he 

had received no gifts in excess of $1000.  This certification was false. 

Schonhorn and Kelley Corruptly Provide Benefits to Kang 

36. In February 2014, shortly after accepting the position with the NYSCRF, 

Defendants Schonhorn and Kang went on a lavish trip to Montreal, at the suggestion of 

Defendant Kang.  Defendant Schonhorn paid expenses for both himself and Defendant Kang, 

which included more than $825 for airline tickets, approximately $720 for hotel rooms, $3,500 

for meals and drinks, and cash for cocaine.   

37. In total, between February 23, 2014 and May 1, 2016, Defendant Schonhorn spent 

approximately $160,000 on more than 100 separate transactions of benefits, travel, and 

entertainment for the benefit of Defendant Kang, none of which was disclosed by Defendant 

Kang to the NYSCRF.  Defendant Schonhorn did not expense these benefits to Broker-Dealer 1, 

but rather paid for them out of his own pocket. 

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38. A partial breakdown of the money spent by Defendant Schonhorn for the benefit 

of Defendant Kang includes:  more than $50,000 spent on hotel rooms in New York City, 

Montreal, Atlantic City, and Cleveland; approximately $25,000 spent at bars and lounges and on 

bottle service; approximately $25,000 spent at restaurants; a $17,400 Panerai watch purchased 

for Defendant Kang; and a $4,200 Hermes bracelet, which was purchased for Defendant Kang’s 

girlfriend at Defendant Kang’s request. 

39. Defendant Schonhorn provided these benefits to Defendant Kang for the purpose 

of obtaining lucrative NYSCRF business through Defendant Kang.   

40. Following Defendant Schonhorn’s gift of the $17,400 Panerai watch to Defendant 

Kang, Defendant Schonhorn and Defendant Kang agreed that Defendant Schonhorn would 

continue entertaining Defendant Kang and providing him benefits so long as Defendant Kang 

funneled enough business to Broker-Dealer 1 to make it worthwhile for Defendant Schonhorn. 

41. Defendant Kelley provided thousands of dollars’ worth of benefits and 

entertainment to Defendant Kang in exchange for access to NYSCRF business, despite the fact 

that her colleagues had warned her to avoid such behavior.   

42. Specifically, in a February 6, 2014 email (immediately prior to Defendant Kelley 

beginning her coverage of the NYSCRF account), another registered representative at Broker-

Dealer 2 told Defendant Kelley to “remember these guys cannot be entertained as they are a state 

fund.”   

43. Nevertheless, Defendant Kelley soon thereafter planned a trip to New Orleans for 

herself, her husband, Defendant Kang, and Defendant Kang’s girlfriend, which took place in 

October 2014.   

44. On this trip, Defendant Kelley spent, and then expensed to Broker-Dealer 2, more 

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than $8,000 for the four of them on meals, drinks, and entertainment, including $6,000 for four 

VIP tickets to a Paul McCartney concert.   

45. Defendant Kelley intentionally omitted the names of Defendant Kang and his 

girlfriend from her expense reports, instead listing clients from a private firm.   

46. Four months later, in February 2015, Defendant Kelley planned a ski trip to Park 

City, Utah for herself, her husband, a co-worker, Defendant Kang, and Defendant Kang’s 

girlfriend.  In particular, Defendant Kelley paid, and then expensed back to Broker-Dealer 2, 

expenses for Defendant Kang and Defendant Kang’s girlfriend, which included more than 

$11,000 for limousine service, skiing, hotel rooms, dinners, and drinks.   

47. Once again, Defendant Kelley concealed from Broker-Dealer 2 the fact that 

Defendant Kang and his girlfriend were on the trip, listing other clients (and even some personal 

acquaintances not in the securities industry) on her expense reports.   

48. Defendant Kang did not disclose his receipt of any of these meals, travel, or 

entertainment to the NYSCRF. 

Kang Corruptly Rewards Schonhorn and Kelley with Lucrative Bond Trading Business 

49. In exchange for these benefits, Defendant Kang steered lucrative bond trading 

business for the NYSCRF to Broker-Dealers 1 and 2, resulting in substantial personal gain for 

Defendants Schonhorn and Kelley.   

50. When Defendant Kang first arrived at the NYSCRF, there were a very small 

number of brokers approved to execute fixed income trades directly for the Fund.   

51. Defendant Kang set out to expand the list of approved brokers under the guise of 

facilitating additional liquidity and obtaining best execution.   

52. On June 10, 2014, at Defendant Kang’s direction, the Fund initiated a fixed 

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income broker search to select brokers for its internally managed assets.  Interested entities were 

required to submit applications, which were then reviewed internally by a group led by 

Defendant Kang.   

53. Defendants Schonhorn and Kelley submitted applications on behalf of Broker-

Dealer 1 and Broker-Dealer 2, respectively.   

54. Several months later, on November 6, 2014, Defendant Kang sent a memorandum 

to the NYSCRF’s CIO recommending that eight brokers be added to the approved list.  The 

recommended brokers included Broker-Dealer 1 and Broker-Dealer 2, and all eight brokers were 

approved.   

55. Although Defendant Kang indicated in his memorandum that the eight brokers 

would be required to submit to a “full due diligence process” conducted by an outside firm, no 

such process ever took place.  Accordingly, the eight brokers were approved based solely on the 

recommendation contained in Defendant Kang’s November 6, 2014 memorandum. 

56. Prior to Broker-Dealer 1 and Broker-Dealer 2 becoming approved brokers, 

Defendant Kang was directing trades to both brokers through one of the Fund’s approved 

brokers, “Broker-Dealer 3.”  

57. By using Broker-Dealer 3, Defendant Kang circumvented the Fund’s policy of 

only using approved brokers, thus allowing Defendant Kang to steer Fund business and 

commissions to Defendants Schonhorn’s and Kelley’s firms even before Defendant Kang was 

able to engineer the placement of those firms on the Fund’s approved broker list. 

58. Defendant Kelley provided substantial personal benefits to Defendant Kang 

beginning shortly after the Fund solicited applications for additional brokers, as the timeline 

below illustrates: 

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Date Event 

June 10, 2014 NYSCRF solicits applications for brokers via email. 

August 15, 2014 In an instant Bloomberg message between Defendants Kang and 
Kelley, Defendant Kang says he would like to see a Paul McCartney 
concert but “might have to sell a car to get [tickets].”  Defendant Kang 
says he wants to see the concert in New Orleans.  Defendant Kelley 
responds, “I’m in.” 

August 19, 2014 Defendant Kelley purchases four Paul McCartney tickets at a price of 
$6,005. 

October 9-13, 
2014 

Defendant Kelley and her husband spend a weekend in New Orleans 
with Defendant Kang and Defendant Kang’s girlfriend.  Defendant 
Kelley expenses more than $8,000 in meals and entertainment. 

November 6, 2014 In a memorandum to CIO of NYSCRF, Defendant Kang recommends 
Broker-Dealer 2, Defendant Kelley’s firm. 

November 6, 2014 Defendant Kang calls one of Defendant Kelley’s colleagues at Broker-
Dealer 2 and mentions going on a ski trip. 

February 13-16, 
2015 

Park City ski trip takes place.  Defendant Kelley expenses more than 
$11,000 in meals, hotel rooms, ski equipment and rentals, limousine 
service, and entertainment. 

 

59. Defendant Schonhorn similarly provided substantial personal benefits to 

Defendant Kang beginning shortly after the Fund solicited applications for additional brokers. 

Between the June 10, 2014 email from the NYSCRF soliciting applications for brokers and 

Defendant Kang’s November 6, 2014 broker recommendation memorandum, Defendant 

Schonhorn spent more than $38,000 on dinners, drinks, concert and sports tickets, illicit drugs, 

and prostitutes for himself and Defendant Kang.  

60. Over the approximately two years that Defendant Kang worked at the NYSCRF, 

he directed a significant amount of trading to Broker-Dealers 1 and 2, resulting in substantial 

personal gain for Defendants Schonhorn and Kelley.  Defendant Schonhorn, for example, often 

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 13 

received hundreds of thousands of dollars in monthly commissions. 

Kelley and Kang Continue Their Attempts to Keep the Scheme a Secret 

61. On August 10, 2015, Broker-Dealer 2 terminated Defendant Kelley after 

conducting an internal investigation into her activities.  During the course of that investigation, 

Defendant Kelley repeatedly lied about the circumstances of the expenditures and who was 

present in Park City.  For example, Defendant Kelley falsely stated that the Park City hotel room 

used by Defendant Kang and his girlfriend was unoccupied during the ski trip, and that she did 

not pay for meals for Defendant Kang and his girlfriend. 

62. Starting on or around October 2015, Defendant Kang and Defendant Kelley 

agreed to tell the same false story about the ski trip to help cover up their activities in Park City.  

63. In her October 2015 response to a letter of inquiry from the Financial Industry 

Regulatory Authority, Inc. (“FINRA”), Defendant Kelley lied about the circumstances of the 

expenditures and who was present in Park City. 

64. On December 17, 2015, Defendant Kelley provided sworn testimony to the 

Commission, during which she perjured herself throughout.  As she had done during Broker-

Dealer 2’s internal investigation and in her response to FINRA, she repeatedly lied about the 

circumstances of the expenditures and who was present in Park City.  Consistent with her 

agreement with Defendant Kang, she testified that she only paid for some small expenses for 

Defendant Kang, and that Defendant Kang reimbursed her with cash and rounds of drinks.  In 

addition, Defendant Kelley never disclosed the existence of, or expenses associated with, the trip 

to New Orleans in spite of the Commission’s inquiries as to whether there was any additional 

travel or expenses similar to the Park City trip. 

65. Both before and after her testimony, Defendants Kelley and Kang remained in 

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 14 

contact.  At some point in January 2016, Defendant Kang became aware that Defendant Kelley 

would not continue to lie about the Park City trip.  Within days, Defendant Kang made several 

attempts to contact his ex-girlfriend for assistance in covering up his activities.  She refused to 

take his calls. 

66. Defendant Kang then enlisted Defendant Schonhorn’s help.  Defendant Kang 

asked Defendant Schonhorn if he knew anyone who could fabricate hotel receipts, in order to 

cover up the ski trip.  In addition, at Defendant Kang’s request, Defendant Schonhorn called 

Defendant Kang’s ex-girlfriend and asked her to send a $4,000 check to Defendant Kelley and to 

pretend as if she had simply forgotten to pay Defendant Kelley for their hotel room.  Defendant 

Kang’s ex-girlfriend refused to do this.   

67. Thereafter, in late January 2016, nearly a year after the Park City trip and after 

failing to enlist the help of his ex-girlfriend to cover up the scheme, Defendant Kang had a 

colleague hand deliver a personal check to Defendant Kelley in the amount of $4,500.  The 

check arrived inside of a Christmas card containing a note written by Defendant Kang which 

falsely stated that “[i]t was just brought to my attention” that his ex-girlfriend “never took care of 

our side of the [ski] trip” and asking Defendant Kelley to let him know if the amount of the 

check was not enough to cover the expenses. 

68. All of these efforts were a deliberate attempt by Defendants Kang and Kelley to 

cover-up their scheme from NYSCRF and others. 

69. On February 22, 2016, the NYSCRF terminated Defendant Kang. 

70. On April 21, 2016, Defendant Kang provided sworn testimony to the 

Commission, during which he perjured himself throughout.   

71. In August 2016, Defendant Kang met with Defendant Schonhorn.  During this 

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 15 

meeting, Defendant Kang discussed how to thwart the Commission’s investigation and any 

criminal investigation into the activities of Defendants Kang and Schonhorn.   

72. Also at this meeting, Defendant Kang returned the $17,400 Panerai watch to 

Defendant Schonhorn.  Defendant Kang told Schonhorn that he had shredded the paperwork that 

had come with the watch, and he explained to Defendant Schonhorn how to have Defendant 

Kang’s name removed from the watch company’s registration records. 

73. Defendant Kang also disclosed to Defendant Schonhorn the substance of his 

testimony to the Commission, and coached Defendant Schonhorn to frustrate the Commission’s 

attempts to question Defendant Schonhorn by simply saying that he does not recall things.  

Defendant Kang also suggested to Defendant Schonhorn that they purchase disposable 

cellphones in order to further discuss their attempts to cover up their activities without the risk of 

their telephone calls being monitored. 

Claims for Relief 
 

Count I 
 

Against Defendant Navnoor S. Kang  
for Violations of Section 10(b) of the Exchange Act  

and Rule 10b-5 Thereunder 
 

74. The Commission realleges and incorporates by reference paragraphs 1 through 73 

as if fully set forth herein. 

75. Defendant Kang, in connection with the purchase or sale of securities, by use of 

the means or instrumentalities of interstate commerce or the mails, directly or indirectly: (a) used 

or employed devices, schemes, or artifices to defraud; (b) made untrue statements of material 

fact or omitted to state material facts necessary to make statements made, in light of the 

circumstances under which they were made, not misleading; and/or (c) engaged in acts, 

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 16 

practices, or courses of business which operated or would operate as a fraud and deceit upon 

other persons, including current and prospective purchasers of securities. 

76. Defendant Kang knowingly or recklessly engaged in the fraudulent conduct 

described above. 

77. By engaging in the conduct described above, Defendant Kang has violated 

Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 

§ 240.10b-5]. 

Count II 
 

Against Defendant Navnoor S. Kang  
for Violations of Sections 17(a) of the Securities Act 

 
78. The Commission realleges and incorporates by reference paragraphs 1 through 73 

as if fully set forth herein. 

79. Defendant Kang, in the offer or sale of securities, by use of the means or 

instruments of transportation or communication in interstate commerce or by the use of the 

mails, directly or indirectly: (a) employed devices, schemes, or artifices to defraud; (b) obtained 

money or property by means of untrue statements of material fact or omissions to state a material 

fact necessary to make the statements made, in light of the circumstances under which they were 

made, not misleading; and/or (c) engaged in transactions, practices, or courses of business which 

operated or would operate as a fraud or deceit upon purchasers of securities. 

80. Defendant Kang knowingly, recklessly, or negligently engaged in the fraudulent 

conduct described above. 

81. By engaging in the conduct described above, Defendant Kang violated Section 

17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 

 

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Count III 
 

Against Defendants Gregg Z. Schonhorn and Deborah D. Kelley 
for Violations of Section 10(b) of the Exchange Act 

and Rule 10b-5(a) and (c) Thereunder 
 

82. The Commission realleges and incorporates by reference paragraphs 1 through 73 

as if fully set forth herein. 

83. Defendants Schonhorn and Kelley, in connection with the purchase or sale of 

securities, by use of the means or instrumentalities of interstate commerce or the mails, directly 

or indirectly: (a) used or employed devices, schemes, or artifices to defraud; and/or (b) engaged 

in acts, practices, or courses of business which operated or would operate as a fraud and deceit 

upon other persons, including current and prospective purchasers of securities. 

84. Defendants Schonhorn and Kelley knowingly or recklessly engaged in the 

fraudulent conduct described above. 

85. By engaging in the conduct described above, Defendants Schonhorn and Kelley 

violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rules 10b-5(a) and (c) 

thereunder [17 C.F.R. § 240.10b-5(a) and (c)]. 

Count IV 
 

Against Defendants Gregg Z. Schonhorn and Deborah D. Kelley  
for Violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act 

 
86. The Commission realleges and incorporates by reference paragraphs 1 through 73 

as if fully set forth herein. 

87. Defendants Schonhorn and Kelley, in the offer or sale of securities, by use of the 

means or instruments of transportation or communication in interstate commerce or by the use of 

the mails, directly or indirectly: (a) employed devices, schemes, or artifices to defraud; and/or (b) 

engaged in transactions, practices, or courses of business which operated or would operate as a 

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fraud or deceit upon purchasers of securities. 

88. Defendants Schonhorn and Kelley intentionally or recklessly engaged in the 

fraudulent conduct described in paragraph 88(a) and intentionally, recklessly, or negligently 

engaged in the conduct described in paragraph 88(b). 

89. By engaging in the conduct described above, Defendants Schonhorn and Kelley 

violated Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1) and 

77q(a)(3)]. 

Count V 
 

Against Defendants Gregg Z. Schonhorn and Deborah D. Kelley  
for Aiding and Abetting Violations of Section 10(b) of the Exchange Act 

And Rule 10b-5(b) Thereunder 
 

90. The Commission realleges and incorporates by reference paragraphs 1 through 73 

as if fully set forth herein. 

91. By engaging in the conduct described above, Defendant Kang, in connection with 

the purchase or sale of securities, by use of the means or instrumentalities of interstate commerce 

or the mails, directly or indirectly, acting intentionally, knowingly or recklessly, made untrue 

statements of material fact or omitted to state material fact(s) necessary to make statements 

made, in light of the circumstances under which they were made, not misleading. 

92. Defendants Schonhorn and Kelley knowingly or recklessly provided substantial 

assistance to Defendant Kang in his violation of Section 10(b) of the Exchange Act and Rule 

10b-5(b) thereunder.  

93. By engaging in the conduct described above, Defendants Schonhorn and Kelley 

aided and abetted violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 

10b-5(b) thereunder [17 C.F.R. § 240.10b-5(b)]. 

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Count VI 
 

Against Defendants Gregg Z. Schonhorn and Deborah D. Kelley 
for Aiding and Abetting Violations of Section 17(a)(2) of the Securities Act 

 
94. The Commission realleges and incorporates by reference paragraphs 1 through 73 

as if fully set forth herein.  

95. By engaging in the conduct described above, Defendant Kang, in the offer or sale 

of securities, by use of the means or instruments of transportation or communication in interstate 

commerce or by the use of the mails, directly or indirectly, obtained money or property by means 

of untrue statements of material fact or omissions to state a material fact necessary to make the 

statements made, in light of the circumstances under which they were made, not misleading. 

96. Defendants Schonhorn and Kelley knowingly or recklessly provided substantial 

assistance to Defendant Kang in his violation of Section 17(a)(2) of the Securities Act.  

97. By engaging in the conduct described above, Defendant Schonhorn and Kelley 

aided and abetted violations of Section 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)]. 

Prayer for Relief 

         WHEREFORE, the Commission respectfully requests that the Court: 

I. 

Permanently enjoin Defendants from violating or aiding and abetting violations of 

Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], Rule 10b-5 thereunder [17 C.F.R. 

§ 240.10b-5], and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; 

II. 

Order Defendants to disgorge the ill-gotten gains they received from the violations 

alleged herein, including prejudgment interest thereon;  

III. 

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Order Defendants to pay civil penalties pursuant to Section 20 of the Securities Act [15 

U.S.C. § 77t], and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)]; and 

IV. 
 

Grant such other and further relief as the Court deems just and proper. 

Jury Demand 
 

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands that 

this case be tried to a jury on all issues so triable. 

Date:   December 21, 2016   Respectfully submitted, 
 

UNITED STATES SECURITIES AND 
EXCHANGE COMMISSION 

              
      /s/ Alyssa A. Qualls                                               

           Alyssa A. Qualls (AQ-4247) 
John E. Birkenheier, Illinois Bar No. 6270993  
Brian D. Fagel, Illinois Bar No. 6224886 

     Attorneys for Plaintiff 
          U.S. Securities and Exchange Commission 
              Chicago Regional Office     

          175 West Jackson Blvd., Suite 900 
          Chicago, Illinois 60604 
          (312) 353-7390 
          (312) 353-7398 (facsimile)   

      [email protected] 
      [email protected] 
      [email protected]  
       
   
                        

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